Tuesday, November 27, 2007

Carpe Diem On CNBC's "Kudlow and Company"

Thanks to Larry Kudlow for mentioning the Carpe Diem blog last night on CNBC's "Kudlow and Company," as well as featuring some Carpe Diem posts on his blog yesterday: "Perry Is On the Mark." Three Carpe Diem graphs were featured last night on the show: the two from this CD post, and the one from this CD post.

Don't miss "Kudlow and Company" at 7 p.m. on CNBC Mon.-Friday.

7 Comments:

At 11/27/2007 11:29 AM, Blogger Marcus said...

Again, the mortgage backed bonds held in SIVs, which are the source of the current credit problems, are NOT bank real estate loans. Your graphs are not showing the source of the problem and are completely missing the exposure banks have to real estate defaults.

The write downs banks may have to take from these SIVs is MUCH larger than the real estate loans they make directly.

I'm with you on this problem being blown out of proportion but I see no reason why that means you should post irrelevant information insinuating that it means something it doesn't.

 
At 11/27/2007 1:59 PM, Blogger riskdoctor said...

What assets does marcus think are in the SIVs? The banks are being hoist on their own petard because they used imperfect models to get high SIV values in the past and these same models are now valuing these assets way too low. Simple math using the banks' own assumptions indicates that actual losses will be far less than the amounts the models are forcing to write down.

 
At 11/27/2007 2:09 PM, Anonymous Anonymous said...

Good post, marcus. I guess that's the price Mr. CD pays to get some press: pandering to Kudlow with inaccurate data. Somebody better wake Kudlow up pretty soon. He's lost what little credibility he had, and if he doesn't start looking at the data with more integrity, the only people watching his show will be Maria B. and Mr. CD.

By the way, here's what Goldman has to say about the jobless numbers in the construction industry (from today's research piece, 'Housing (Still) Holds the Key to the Fed'):

"Third, we (and others) have argued that the payroll data may be understating the employment slowdown because of errors in the "birth-death model," a statistical plug factor that estimates job creation by newly created firms -- which by definition are not included in the Labor Dept's sample of establishments..."

Care to guess what percent of ALL jobs created are due to the birth-death model since the birth-death model came into play in 2004? 61%. If that doesn't scare you not much will. That means that excluding the b-d model, the economy only generated about 58,000 jobs per month since 2004. Now, it's not fair to totally discount the creation of new jobs via the b-d model, especially in 2004 and 2005. But, to ignore the blatant job-pumping the b-d model entrains in 2006 and 2007 seems more than a little disingenuous to me.

And the worst part about all this is that Mr. CD seems like a good guy, he really does! Maybe he hasn't thought about the numbers like some other folks have. That's all I can figure. Ah, the price for fame...

 
At 11/27/2007 2:16 PM, Anonymous Anonymous said...

riskdoctor, you might want to think about it like this: SIVs are levered 15 to 1 on average. A 3% hit to assets = a 45% hit to equity. So if CDOs and rotten mortgage paper make up 25% of SIV assets, and that paper is down 10%, that equals a 5% hit to assets, or at 75% hit to equity! That's what the problem is, the leverage in the system. That is why all the banks are deleveraging as fast as they can. There is a very clear first-mover advantage. That is why you will see major resistance from smaller banks to participate in the Super-SIV. Why lock up assets now that will surely be written down later at much lower values?

 
At 11/27/2007 2:18 PM, Anonymous Anonymous said...

Sorry, correction: if the SIV takes a 20% writedown (not a 10% writedown) on dubious assets that equals a 5% hit to total assets...

 
At 11/27/2007 4:10 PM, Anonymous Anonymous said...

Hey Buddy, Can You Spare $1,000 Trillion?

http://www.opednews.com/articles/opedne_sharon_k_071117_hey_buddy_2c_can_you_s.htm

 
At 11/27/2007 5:32 PM, Blogger Marcus said...

riskdoctor,

You're missing my point.

Mark's charts are of real estate loans the banks make directly and thus are on the banks' books. However, these loans are not the source of the current credit risk banks face.

Banks are in trouble because of their exposure to SIVs which are NOT loans the banks' made and are NOT on the banks' books and thus do NOT compose the charts that Mark is posting.

Mark's charts do not include the source of the problem and thus are understating the problem.

 

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